Chapter 11: Differential Analysis

Question 1

The first step in decision making is to _____

Answer 1

define the alternatives

Question 2

Costs and benefits that always differ between alternatives are ______ costs and benefits

Answer 2

relevant

Question 3

Synonyms for differential costs include ______ cost

Answer 3

• avoidable
• incremental

Question 4

A cost that can be eliminated by choosing one alternative over another is a(n) _____ cost

Answer 4

relevant

Question 5

Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______ costs

Answer 5

sunk

Question 6

In the context of decision making, every decision involves choosing from among at least two alternatives.

Answer 6

true

Question 7

When making a decision, only ______ costs and benefits should be included in the analysis

Answer 7

relevant

Question 8

A future cost that is not the same between any two alternatives is known as a(n) _____, incremental, or avoidable cost

Answer 8

differential

Question 9

A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) ______ cost.

Answer 9

avoidable

Question 10

Costs that have no impact on future cash flows and are irrelevant to decisions are ______ costs

Answer 10

sunk

Question 11

Which of the following should not be included in the analysis when making a decision?

Answer 11

• non-differential future costs
• sunk costs

Question 12

Opportunity costs are not found in accounting records because they are not relevant to decisions.

Answer 12

false

Question 13

Differential revenue is an example of a(n) ______ benefit

Answer 13

relevant

Question 14

When making a decision to either buy a movie ticket or rent a DVD, the cost of the movie ticket is an example of a(n) ______ cost

Answer 14

• incremental
• avoidable

Question 15

Irrelevant costs include _____

Answer 15

• future costs that do not differ between alternatives
• sunk costs

Question 16

The potential benefit given up when selecting one alternative over another is a(n) ______ cost

Answer 16

opportunity

Question 17

When making a decision, irrelevant items are included in the analysis of both alternatives when using _____

Answer 17

the total cost approach only

Question 18

To reduce the risk that data may be used improperly, resulting in an incorrect decision it is desirable to _____

Answer 18

isolate relevant costs from irrelevant costs

Question 19

A decision to carry out one of the activities in the value chain internally rather than to purchase externally from a supplier is a ______ decision

Answer 19

sourcing

Question 20

Less dependence on suppliers is an advantage of ______

Answer 20

vertical integration

Question 21

When considering decision alternatives, both relevant and irrelevant costs are included when using the _____ cost approach.

Answer 21

total

Question 22

Isolating relevant costs is desirable because _____

Answer 22

• irrelevant costs may be used incorrectly in the analysis
• all information needed for the total cost approach is rarely available

Question 23

Determining whether or not to perform activities such as after-sales customer service or accounting in-house are examples of a ______ decision

Answer 23

sourcing

Question 24

Being less dependent on suppliers and realizing profits from the parts and materials that it is “making” rather than “buying,” as well as profits from its regular operations, are advantages of _____ _____

Answer 24

vertical integration

Question 25

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is as follows: Cost Per Unit Total Variable manufacturing cost $12 $240,000 Supervisor salary $3 $60,000 Depreciation $1 $20,000 Allocated fixed overhead $7 $140,000 If the part is purchased, the supervisor position will be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. The company should ______.

Answer 25

continue to make the part — $60,000 advantage

Question 26

Space being used that would otherwise be idle has a(n) _____ cost of zero

Answer 26

relevant

Question 27

Which of the following may be an advantage of making a part rather than buying it?

Answer 27

- A smoother flow of parts and materials for production - Less dependence on outside suppliers

Question 28

A company is considering buying a component part that they currently make. Items related to the equipment being used to make the component that are relevant to this decision include _____

Answer 28

- salvage value - alternative uses for the equipment

Question 29

A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) _____ _____ decision

Answer 29

special order

Question 30

If a company is using a resource that could be used for some other purpose, the opportunity cost of that resource is ______

Answer 30

the segment margin from the best alternative use of the resource

Question 31

A company must make a volume trade-off decision when they _____

Answer 31

- do not have enough capacity to satisfy all product demand - must trade off units of one product for units of another

Question 32

A one-time order that is not considered part of the company's normal ongoing business is called a ______ order

Answer 32

special

Question 33

When demand for products exceeds the production capacity, a(n) _____ _____-_____ decision must be made

Answer 33

volume trade-off

Question 34

When a shortage or limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) _____

Answer 34

constraint

Question 35

When dealing with a constrained resource, managers should focus their attention on managing the ______

Answer 35

bottleneck

Question 36

When a resource, such as space in the factory, has no alternative use, its opportunity cost is _____

Answer 36

zero

Question 37

When making a volume trade-off decision, managers should ignore _____

Answer 37

fixed costs

Question 38

A limited resource of some type that restricts the company's ability to satisfy demand is a(n) _____

Answer 38

constraint

Question 39

The step that limits total output because it has the smallest capacity is called a constraint or _____

Answer 39

bottleneck

Question 40

If some products must be cut back because of a constraint, produce the products with the highest _____

Answer 40

contribution margin per unit of constrained resource

Question 41

Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time and 10 minutes of labor time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time and 5 minutes of labor time. If the company's constraint is labor hours, the contribution margin per unit of constraint for Product XYZ is $_____ per minute

Answer 41

3

Question 42

When a constraint exists, companies need to focus on maximizing _____

Answer 42

total contribution margin

Question 43

To maximize total contribution margin when a constrained resource exists, produce the products with the _____

Answer 43

highest contribution margin per unit of the constrained resource

Question 44

Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time. If the company's constraint is machine hours, to maximize profit, they should first fill the demand for Product _____

Answer 44

ABC

Question 45

Anything that prevents you from getting more of what you want is a(n) _____

Answer 45

constraint

Question 46

When there is a constrained resource, the best way to increase profits is to _____

Answer 46

increase the capacity of the bottleneck

Question 47

Two or more products that are produced from a common input are known as _____ products.

Answer 47

joint

Question 48

The split-off point is the point in the manufacturing process at which the _____ products can be recognized as separate products.

Answer 48

joint

Question 49

When a constraint exists, managers can increase profits by reducing the capacity of the bottleneck.

Answer 49

false

Question 50

When a manager increases the capacity of the bottleneck, it is called _____ or elevating the constraint.

Answer 50

relaxing

Question 51

Deciding what to do with a joint product at the split-off point is a(n) _____ or _____ _____ decision.

Answer 51

sell; process further

Question 52

Two or more products produced from a common input are called _____

Answer 52

joint products

Question 53

The point in the manufacturing process at which joint products can be recognized as separate products is called the ______ point.

Answer 53

split-off

Question 54

Which of the following involves increasing the capacity of a bottleneck?

Answer 54

relaxing the constraint

Question 55

Deciding what to do with a joint product at the split-off point is a ______ decision.

Answer 55

sell or process further

Question 56

Costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called _____ costs.

Answer 56

joint

Question 57

As it applies to sell or process further decisions, which term refers to a product that is in the process of being made?

Answer 57

intermediate product

Question 58

The costs incurred up to the split-off point in a process in which two or more products are produced from a common input are known as ______ costs.

Answer 58

joint

Question 59

When a product is past the split-off point, but is not yet a finished product, it is called a(n) _____ product.

Answer 59

intermediate